Development Account Projects
Developing a regional financial and monetary architecture in the Asia-Pacific in support of global financial reforms
Prior to the economic crisis, the Asia-Pacific region as a whole made remarkable progress towards reducing poverty and achieving the MDGs, with the share of the region's population living in extreme poverty (less than US $1.25 per day) falling from 48.8% to 25.3% between 1990 and 2005. However, as a result of the financial crisis, it is estimated that an additional 17 million people will be trapped in extreme poverty in 2009 and another 4 million in 2010 in the Asia Pacific region alone with far-reaching consequences for human development. The crisis clearly demonstrated that unless solutions are found through regional and international policy reforms for dealing with structural problems such as volatile capital movements, growing global economic imbalances, rising fiscal deficits and inflationary pressures, the regional economies will remain as vulnerable to future crises as they were before, while the poor and those excluded from access to financial services will be even worse affected by such instabilities.
Preventing the recurrence of devastating boom-bust cycles and the contagion of economic crises require active financial and monetary cooperation at the regional level. The few existing mechanisms, for example, the Chiang Mai Initiative of ASEAN+3, the Asian Bond Market Initiative (ABMI), the ASEAN+3 credit guarantee facility and the Asian Clearing Union, all have partial membership coverage, remain small in scale and are largely still too underdeveloped to effectively act as stabilizers in times of crisis.
The project aims to strengthen regional financial and monetary cooperation in the Asia Pacific region towards developing an inclusive and sustainable regional financial architecture. ESCAP with its 53 members and 9 associate members can help forge common understandings across the region that can serve as building blocks to further reforms in the global financial architecture. This project therefore further builds upon the Development Account project (7th tranche) of the ESCAP secretariat entitled "Strengthening capacity in mitigating the impact of the financial crisis and sustaining dynamism and inclusive development in Asia and the Pacific", which focuses on enhancing the capacity of senior government officials and policymakers to formulate and implement well coordinated macroeconomic policies and raising their awareness on the importance of strengthening regional cooperation to mitigate the impact of the crisis. As the next step, the research and analysis resulting from the currently proposed project is envisioned to provide the member states with practical solutions and implementable regional mechanisms that could lead to the development of a comprehensive regional financial and monetary architecture.
The project is in line with the Secretary-General's Strategic Priorities for 2010 as outlined in his remarks to the General Assembly, "Agenda 2010" on 11 January 2010, in particular, the first priority of establishing a new global plan for the MDGs and delivering development outcomes for those most in need. The project will contribute to achieving the 2010 benchmark to "keep attention on the impact of the economic crisis on the most vulnerable high on the international agenda". Also, the project will take into account the Outcome Document of the United Nations Conference on World Financial and Economic Crisis and Its Impact (2009), which recognized the sensitivity of regional and subregional institutions to the specific needs of their constituencies, and encouraged enhanced regional cooperation in meeting the challenges of the global economic crisis. Furthermore, the project is expected to provide a more inclusive support to the G-20 process of policy coordination and reform by providing a voice to Asia-Pacific countries that are not members of the G-20.
The main lesson learnt through these activities is that there needs to be a better understanding of the key requirements of a regional financial architecture and ESCAP member states need to be presented with workable solutions to tackling the obstacles that hamper stronger and broader regional monetary cooperation. For instance it was highlighted in various fora that critical elements should include a mechanism to intermediate regional savings and investment needs, in particular for funding the development of regional infrastructure, and a regional crisis response mechanism using regional foreign exchange reserves. Each of these elements would require the establishment of an institutional structure as well as decisions about the exact modalities of undertaking these tasks.
The objective of the project is to strengthen regional financial and monetary cooperation towards developing an inclusive and sustainable regional financial architecture in support of global economic reforms.
- Improved understanding among policymakers and development partners of key analytical issues and operational components involved in developing mechanisms for regional financial and monetary cooperation that could help build resistance against external economic shocks and promote the use of regional resources in a more productive and efficient manner.
- Enhanced regional consensus on the structure and components of a regional financial architecture and agreement on the basic framework as well as long-term plan for deepening regional financial and monetary cooperation towards developing a comprehensive regional financial architecture.